Trump’s Victory - A Boost for Dual-Use Tech Innovation

Written By Jordan Clayton

Assessing the Implications of Dual-Use & Defense Tech Advancement

As President Trump returns to office, he brings a distinct agenda likely to reshape the landscape for dual-use and defense tech startups. For founders and investors, his administration’s focus on streamlined defense spending, relaxed regulatory environments, and a collaborative stance with Silicon Valley tech magnates creates a unique opportunity to advance disruptive technologies in the defense sector.

The focus on high-capital-efficiency models such as “Software Defined, Hardware Enabled” solutions aligns with Trump’s emphasis on efficiency, opening doors for startups that prioritize scalability, flexibility, and cost-effective innovation. For investors, this administration’s policies signal a pivotal moment to fund the next wave of dual-use technologies.

A Historical Trend of Defense Investment Under Trump

During Trump’s previous term, U.S. defense spending surged, reaching approximately $778 billion in 2020—a 4.4% increase over the prior year and one of the highest defense allocations globally. This expanded defense budget catalyzed growth in the defense technology sector, especially for dual-use technologies, which are highly adaptable for both military and civilian applications. According to SIPRI, the U.S. accounted for nearly 40% of global defense spending during this period, positioning itself as a leader in defense innovation.

The Trump administration’s emphasis on modernizing military capabilities not only bolstered national security but created new opportunities for tech startups. Venture capital surged into the sector; from 2016 to 2022, VCs invested $135.3 billion across 4,744 defense technology deals, driven by government demand for agile, cost-efficient solutions in fields like AI, cybersecurity, and autonomous systems. Companies like Anduril, SpaceX, and Palantir became industry giants, benefiting from federal funding and heightened interest in dual-use innovation. This momentum established a strong foundation, drawing in investors who saw the potential for scalable, adaptable technology that could address both commercial and defense needs.


Trump’s 2024 Victory: A Catalyst for Emerging Defense Tech

Trump’s return to office marks a potentially transformative era for the defense tech industry, particularly for emerging companies that have long struggled to penetrate the Department of Defense (DoD) procurement ecosystem. For years, the procurement landscape has been dominated by established defense giants like Lockheed Martin, Northrop Grumman, and Raytheon, leaving limited opportunities for smaller, venture-backed companies with innovative solutions. With the DoD budget anticipated to surpass $800 billion, Trump’s commitment to “getting more for less” could translate into meaningful reform in how the DoD allocates resources, opening doors for startups that prioritize cost-effective, agile solutions.


A Shift Toward Cost-Efficiency and Technological Innovation

Under Trump’s leadership, the DoD’s allocation strategy may increasingly prioritize cost-efficient innovation. Venture-backed companies offering solutions that are agile, scalable, and cost-effective stand to benefit, particularly those adopting the “Software Defined, Hardware Enabled” approach. This focus not only addresses the administration’s goals of balancing the budget but also offers a path to deploy critical technology solutions at scale. Trump’s statement on the campaign trail emphasized this vision: “We want our military to be the best in the world—but without bankrupting the American people,” a sentiment echoed by Anduril’s co-founder, Palmer Luckey: “Trump is a change candidate. He very much wants to balance the budget and save money, get more for less.”


Increasing Opportunities for Defense Tech Startups

Despite the rapid growth of dual-use technology funding, venture-backed defense startups have historically captured less than 1% of the Pentagon’s procurement budget, with a notable disparity between funding and awarded contracts. In fiscal year 2023, for instance, only $4.11 billion of the Pentagon’s $411 billion contracting budget was allocated to companies outside of the established prime contractor sphere. Trump’s commitment to expanding the defense tech ecosystem could meaningfully increase this share, with projections estimating that venture-backed firms could see a doubling in contract allocations within the next two years if procurement reform initiatives take hold.

With this shift, the DoD could potentially see savings of up to 20% on certain operational costs by turning to dual-use solutions that maximize existing hardware through software upgrades. For example, recent studies indicate that using software-defined upgrades for unmanned systems could cut costs by an estimated 25% to 35% compared to hardware-based improvements, aligning with Trump’s mandate to increase budget efficiency.


The Impact of Silicon Valley Influence on DoD Procurement

Trump’s administration has cultivated strong ties with Silicon Valley leaders who are vocal advocates for disruptive technologies and lean, efficient operational models. Figures like Elon Musk, Peter Thiel, and Marc Andreessen have emerged as influential allies, pushing for DoD procurement to prioritize performance over process. Musk, in a statement on election night, highlighted this vision, emphasizing, “It’s very important to open up the Defense Department and intelligence agencies to entrepreneurial companies like [Anduril]. Pay for outcomes, not requirements documents!”

This push for a results-oriented approach marks a departure from traditional defense procurement models, where the process can often prioritize stringent requirements that drive up costs without guaranteeing better outcomes. Instead, Musk and his allies advocate for a model that rewards cost-effective results—an approach likely to find support under Trump’s administration. This sentiment is also echoed by Shyam Sankar, CTO of Palantir, who has advocated for acquisition reform, emphasizing the need for "competition and agility" to allow dual-use technologies to effectively compete against legacy systems.

A Surge in Investor Optimism and Stock Market Reaction

The potential for procurement reform under Trump has generated strong investor optimism, as evidenced by recent surges in stock prices for companies well-positioned in defense technology. For instance, Palantir saw an 8.61% rise in its stock value following Trump’s victory, part of a 29% increase over just five days as the market anticipated more favorable DoD contracting conditions. This spike underscores a broader trend of investors viewing Trump’s policies as advantageous for defense tech firms that offer innovative, software-focused solutions.

Moreover, private investment interest has expanded significantly, with venture capital funds such as Andreessen Horowitz’s American Dynamism fund and Sequoia Capital’s defense portfolio seeing a marked increase in funding requests from startups. This trend suggests that investor interest in dual-use startups is not only high but also fueled by the potential for substantial returns, especially in an environment with streamlined procurement and increased access to DoD funding.


Market Euphoria: The Financial Response to Trump’s 2024 Victory

The markets have responded decisively to Trump’s landslide 2024 win, sparking widespread optimism across asset classes and sectors. Investors are buoyed by expectations of an environment with reduced regulatory burdens, potential tax cuts, and increased support for domestic growth—all under a business-friendly administration. This optimism has translated into record-breaking surges in stocks, cryptocurrency gains, and an overall rally in risk assets that mirrors the original "Trump rally" of 2016.


Record-Breaking Performance in Equity Markets

Following Trump’s victory, the U.S. stock market experienced one of its most substantial single-day rallies since 2022. The Dow Jones Industrial Average surged by 1,508 points, closing at a record high of 43,729.93—a 3.57% gain. This rally was mirrored across other major indexes:

  • S&P 500: Gained 2.53%, reaching an all-time high of 5,929.04.

  • Nasdaq Composite: Rose by 2.95%, closing at a record 18,983.47.

  • Russell 2000: The small-cap index surged 5.84% to a new 52-week high, as smaller, more domestic-oriented companies are expected to benefit significantly from Trump’s policies.

These gains reflect investor confidence that Trump’s administration will prioritize pro-business policies, including potential corporate tax cuts, deregulation, and an emphasis on “America First” industrial policies that support domestic industries. Marc Pinto, head of Americas equities at Janus Henderson Investors, captured this sentiment, stating, “Trump is viewed as supporting lower corporate tax rates, deregulation, and industrial policies that favor domestic growth, all of which could provide more stimulus to the U.S. economy and benefit risk assets.” Given this outlook, analysts predict that this latest rally could continue in a sustained “Trump bump,” much like the post-election gains seen in 2016.


Cryptocurrency Hits New Highs: Bitcoin Soars to $88,000

The cryptocurrency market has also reacted enthusiastically to Trump’s victory, with Bitcoin hitting an all-time high of $88,000. This price surge is fueled by projections of even higher gains, with some analysts predicting Bitcoin could hit $100,000 within the next few months. The anticipated rollback of regulatory oversight on digital assets under a Trump administration has encouraged crypto investors, who foresee a more favorable regulatory environment for blockchain and crypto innovations.

  • Market Insights: Analysts expect that a lighter regulatory touch on cryptocurrencies could spur more institutional and retail investments in digital assets, increasing liquidity and supporting further price increases. Trump’s influence could accelerate the adoption of cryptocurrency as a hedge against inflation and traditional market volatility.

Venture Capital Market Rejuvenation: Increased Liquidity and Investment Optimism

The venture capital sector has shown considerable enthusiasm following Trump’s election, with predictions of increased liquidity, more IPOs, and a revived mergers and acquisitions market. According to a recent Venture Trends survey, VC fund managers worldwide anticipate a more liquid environment as Trump’s pro-business stance promises less regulatory scrutiny and greater support for high-growth sectors like technology and defense.

  • Increased IPO Activity: With the anticipation of deregulation and more favorable tax policies, venture capitalists expect an uptick in IPOs as startups aim to capitalize on high valuations and the receptive market.

  • Enhanced Liquidity: Venture funds are preparing for increased exits, as more IPOs and acquisitions bring liquidity into the ecosystem, allowing for more capital to be recycled into promising startups.

Sector-Specific Gains: Tesla and Financial Institutions Lead the Rally

Certain sectors have experienced particularly robust gains as they are seen as primary beneficiaries of Trump’s business-friendly policies:

  • Tesla: Shares surged over 14% as Elon Musk, a prominent Trump backer, is expected to have greater influence in shaping policies that benefit tech and defense innovation. Musk’s support for Trump is anticipated to drive favorable conditions for tech companies that develop dual-use and defense-related technologies.

  • Financial Sector: Banking giants JPMorgan Chase and Wells Fargo saw gains of 11.5% and 13%, respectively, as investors anticipate a deregulatory environment that could drive profitability for financial institutions.

  • Small-Cap Companies: The Russell 2000 surged 5.84% as Trump’s policies, which are expected to prioritize tax cuts and protectionist measures, are seen as particularly advantageous for smaller, domestic-focused companies.

Investor Sentiment: Renewed Appetite for Risk Assets

The excitement across markets underscores a renewed investor appetite for risk, spurred by Trump’s victory and the anticipated economic policies his administration is likely to implement. Investment portfolios across sectors have already seen gains, and many investors expect the momentum to continue. The pro-growth, pro-business outlook is creating a favorable environment for capital deployment, with VCs and institutional investors increasingly eyeing opportunities in high-growth, capital-efficient sectors, particularly those aligned with dual-use technologies.


Anticipated Shifts in Contracting Models: From Cost-Plus to Performance-Based Contracts

A major pain point for dual-use and defense startups has been the traditional cost-plus contracting model, which favors established contractors by covering all costs plus an additional profit margin. For emerging companies, this structure often proves prohibitive. In contrast, Trump’s administration has indicated an openness to performance-based contracting, which offers incentives based on tangible outcomes. Bryon Hargis, CEO of Castelion, a missile startup backed by Andreessen Horowitz, praised this potential shift, calling cost-plus contracts “a horrible deal for taxpayers” and suggesting that performance-based contracts could unlock significant efficiency gains for the DoD.

A transition toward performance-based contracting could increase the competitiveness of startups by leveling the playing field, allowing them to bid based on results rather than process adherence. If adopted, such contracts could drive substantial innovation, as companies focus on delivering functional, agile solutions without the bureaucratic weight of traditional cost-plus structures.


Paving the Way for Scalable Dual-Use Solutions

Under Trump, the DoD’s approach is expected to favor scalable dual-use solutions that can be rapidly deployed and easily updated. This approach aligns with current bipartisan interest in transitioning from high-cost, heavily engineered systems to autonomous, adaptable, and affordable technologies that serve both military and commercial markets. The Replicator drone program, initially supported under Biden, provides a roadmap for expanding software-driven defense solutions—one that Trump’s administration is expected to leverage and potentially accelerate.

The growing market for scalable, software-defined defense tech solutions has significant economic implications. Estimates from industry analysts suggest that dual-use technologies could contribute over $15 billion annually to the U.S. defense sector by 2025, driven by advancements in AI, autonomous systems, and cybersecurity. With a projected 30% growth in venture-backed defense technology investments over the next three years, Trump’s administration provides an ideal environment for startups and investors to capitalize on a rapidly expanding market.

New Avenues for Dual-Use and Defense Tech over the Next Four Years

  1. Shifting Budget Priorities toward Emerging Companies
    Trump’s administration is likely to reallocate a significant portion of the DoD budget from legacy contractors to smaller, innovative firms. This shift could create unprecedented access for startups developing AI, autonomous systems, and analytics tools to address defense challenges at a lower cost than traditional solutions. The market response has already been positive; for example, Palantir’s stock rose by 8.61% post-election, signaling investor confidence in this administration’s favorable policies toward defense tech.

  2. Support for Software-Driven Solutions
    With Trump’s emphasis on cost-efficient spending, the administration’s approach aligns well with software-defined, hardware-enabled technologies that maximize functionality with minimal hardware costs. This model supports Trump’s goal of reducing unnecessary spending, and companies using this approach can secure procurement contracts by providing software updates rather than new hardware, saving the DoD considerable funds while ensuring solutions remain versatile and effective for various missions.

  3. Addressing Cost-Plus Contracts and Acquisition Reform
    Traditional “cost-plus” contracts, which favor large contractors, have been criticized for inefficiency and high taxpayer costs. Under Trump, there is hope that these contracts will shift toward performance-based agreements, creating a fairer landscape for startups. This adjustment would not only enable dual-use companies to avoid prohibitive costs but also open the door for faster procurement, bridging the notorious “Valley of Death” where many defense tech startups struggle to secure full-scale funding.

  4. Breaking Through the “Valley of Death”
    The Trump administration’s commitment to acquisition reform, coupled with support from tech leaders like Elon Musk, suggests an opening for new players in the DoD’s procurement process. Historically, less than 1% of Pentagon contracts went to venture-backed firms. By prioritizing startups and restructuring acquisition processes, the administration could accelerate dual-use technologies from R&D to deployment, allowing young companies to achieve sustained growth and resilience.

Key Policy Impacts on Dual-Use and Defense Tech

  1. AI Deregulation and Dual-Use Flexibility
    AI, viewed through the dual lenses of national security and global competition, is likely to experience a deregulated environment. By rolling back certain Biden-era AI reporting requirements, the administration will facilitate faster AI deployment for both commercial and defense applications, supporting a market environment that favors agility and rapid innovation.

  2. Anti-Big Tech Stance and Implications for Section 230
    Trump’s administration is expected to revisit Section 230, which shields social media platforms from liability for user-generated content. The anti-Big Tech narrative could lead to significant policy shifts, potentially creating new opportunities for smaller tech companies to compete in a market less dominated by entrenched players. For startups, this opens potential pathways to gain visibility and market share if regulatory changes weaken larger competitors.

  3. Industrial Policy and Export Controls
    Trump’s preference for tariffs over subsidies signals a drive to bolster domestic tech manufacturing, with implications for dual-use companies in hardware production. By imposing tariffs on foreign tech imports, the administration aims to reduce dependence on foreign supply chains—a strategy likely to benefit companies committed to onshore manufacturing, particularly those producing semiconductors and other critical components.

  4. Focus on Military Applications of AI and Autonomous Systems
    Military AI and autonomous systems will be prioritized under Trump’s administration, with expectations of less stringent ethical oversight than in prior years. AI applications in defense, especially in autonomous vehicles and drones, are set to expand with Trump’s administration pushing for faster development cycles. This approach supports dual-use companies that specialize in adaptable autonomous solutions capable of meeting both commercial and military demands.

Challenges and Strategic Risks for Emerging Defense Tech Companies

  1. Geopolitical Uncertainty
    Trump’s stance on foreign policy and potential reductions in NATO commitments may introduce uncertainty for European defense tech companies reliant on U.S. cooperation. Additionally, a pivot away from support for Ukraine could impact companies tied to conflict-related contracts, while opportunities may emerge in new theaters such as Israel and the broader Middle East.

  2. Unpredictability and Policy Shifts
    While Trump’s deregulatory stance is largely favorable for tech development, his administration’s unpredictability may require companies to remain flexible and ready to pivot based on policy changes. This volatility, while creating opportunities for rapid growth, demands agility from dual-use tech firms to navigate evolving regulatory landscapes.

  3. Navigating Entrenched Contractors
    Although Trump’s administration promises to empower startups, the traditional defense contractors, with deep ties in Washington, will likely resist these changes. Startups will need to cultivate strategic alliances with policymakers and leverage their innovative edge to navigate the lobbying power of established defense giants.

Perspective on Key Insights and a Winning Strategy for Investors and Founders in the Trump-Era Dual-Use Landscape

With Trump’s pro-business administration poised to favor capital efficiency, deregulation, and dual-use tech growth, investors and founders are presented with a uniquely advantageous landscape. However, beneath the market optimism and immediate gains, the next 12 months will require a strategic approach, one that capitalizes on policy shifts while preparing for potential volatility and longer-term shifts in defense and tech policy. Here is our nuanced analysis and recommendations to maximize value in the dual-use technology sector in this evolving macro environment.

Bet on Resilience and Capital Efficiency: Software-Driven Solutions Over Hardware Investments

In the next year, investors should lean into software-driven, hardware-enabled technologies, particularly those focused on scalable solutions that stretch existing infrastructure without the need for heavy new hardware expenditures. The “Software Defined, Hardware Enabled” model is directly in line with Trump’s budget-conscious approach to defense spending and offers high adaptability across sectors, from military to commercial use.

  • Opportunity: Focus on investing in startups that offer versatile software layers adaptable to legacy defense and industrial hardware. Cybersecurity, AI-driven predictive maintenance, and systems that enhance autonomy through software are primed to meet both commercial and defense needs without high initial capital outlays.

  • Strategy: Position capital in companies with platforms and products that can easily integrate into both aging and cutting-edge hardware across different industries, giving them a competitive edge in DoD contracts and commercial markets.

Position for Rapid Market Entry with Regulatory Flexibility and Compliance Savvy

The Trump administration’s deregulation agenda, particularly in AI and cybersecurity, will create windows for rapid product launches and expedited market entries. However, while federal regulation may lighten, founders and investors must anticipate the ongoing global push for responsible AI use and privacy, which will influence the longer-term viability of technologies.

  • Opportunity: Look for dual-use startups that prioritize a fast time-to-market while embedding flexible, regulatory-compliant frameworks that anticipate future international AI, data protection, and cybersecurity standards.

  • Strategy: Founders should proactively embed adaptable regulatory frameworks into product design, allowing rapid adjustments to any potential shifts in data privacy or cybersecurity rules globally. Investors should prioritize companies that demonstrate forward-thinking regulatory compliance within their tech stack, especially as global compliance standards could create friction points in rapid expansion.

Harness Federal-Backed Innovation, But Hedge Against Geopolitical Exposure

Trump’s prioritization of American-made defense technologies and the potential shift in NATO and European alliances could lead to an influx of federal contracts focused domestically. However, the administration’s shifting stance on foreign alliances introduces potential instability for companies with international dependencies or heavy reliance on foreign tech markets.

  • Opportunity: Invest in companies with robust domestic manufacturing or those that can pivot quickly to alternative supply chains to mitigate dependency on foreign parts. Startups that enhance U.S. supply chain independence—especially those working in areas like semiconductor manufacturing, autonomous vehicles, and next-gen telecommunications—are well-positioned for defense contracts and the broader dual-use tech market.

  • Strategy: Emphasize investment in companies with diversified supply chains and those prepared for either onshore production or sourcing flexibility. For example, backing dual-use startups in semiconductor or advanced material manufacturing could yield long-term advantages, given Trump’s preference for domestic production and reduced reliance on international markets.

Leverage Rising Investor Optimism: Increase Liquidity for IPOs and Acquisitions

With markets responding positively to Trump’s victory, the next 12 months are likely to see high liquidity, greater risk appetite, and a favorable environment for IPOs and strategic exits. The dual-use sector, being a recipient of both private investment and government contracts, is well-suited to benefit from this heightened liquidity.

  • Opportunity: Founders in the dual-use space should prepare for potential exits or IPOs to maximize valuation within the current risk-on investment climate. For investors, strategically timing exits in high-performing dual-use tech firms or positioning for strategic acquisitions offers a way to ride this liquidity wave while potentially re-deploying capital into earlier-stage dual-use ventures.

  • Strategy: Establish a clear exit strategy that aligns with market momentum. For venture firms, targeting dual-use companies nearing maturity or readiness for public markets is key, as these exits will be favorably priced in a bullish environment, particularly if momentum sustains into later 2025.

Build Relationships with Government Allies and Tech Influencers

Trump’s close alignment with Silicon Valley’s top tech influencers, including Elon Musk and Peter Thiel, is likely to shape dual-use priorities in defense tech acquisitions. With increased government influence from private-sector advocates, dual-use startups have a unique opportunity to secure critical DoD support, but they must build and maintain strong industry relationships to ensure their technology remains prioritized.

  • Opportunity: Founders and investors should focus on building inroads with government advisors, tech industry leaders, and key administration players likely to have a say in DoD technology priorities. Companies aligning themselves with figures like Musk and Thiel, or with tech-forward policy advocates within the administration, will be better positioned to capture government contracts.

  • Strategy: Develop an active network-building approach, specifically targeting influential advocates within Trump’s administration and Silicon Valley influencers who have publicized their support for dual-use technologies. Engage directly with policymakers through targeted events, lobbying, and public-private partnerships to maintain alignment with emerging defense priorities.

Prepare for Strategic Acquisitions Amid Shifting Defense Priorities

The current momentum favors defense technology that integrates dual-use applications, creating fertile ground for strategic acquisitions. As Trump’s administration potentially reallocates defense spending from entrenched contractors to high-growth, tech-centric startups, companies in adjacent or complementary markets could find acquisition opportunities or partnerships in the dual-use space.

  • Opportunity: Investors and founders should consider acquisition strategies that allow for complementary tech integration. For example, startups offering AI solutions could look to acquire or partner with companies specializing in unmanned systems, enhancing both companies’ value propositions for scalable defense applications.

  • Strategy: Map potential acquisition targets or partners that fill gaps in scalability, integration, or defense-readiness, especially in areas like cybersecurity, unmanned vehicles, and command-and-control systems. For investors, establish acquisition-ready funds or partnerships with private equity to position dual-use tech startups as prime acquisition targets or acquire smaller firms to broaden their dual-use applications.

Align Product Roadmaps with AI, Autonomy, and Cybersecurity Trends in Defense Tech

As Trump’s administration emphasizes defense applications of AI and autonomy, founders should prioritize product development in these core areas. While the initial regulatory landscape may be favorable, AI and cybersecurity technologies in defense will continue to receive scrutiny for ethical use, safety, and reliability—especially under potential future administrations or international scrutiny.

  • Opportunity: Invest in technologies that prioritize both defense-grade performance and ethical considerations, particularly in autonomy and AI. Dual-use technologies in autonomous systems, decision-support AI, and predictive analytics will be top priorities for a government eager to bolster military tech capabilities while maintaining public trust.

  • Strategy: Develop a robust ethical framework within product roadmaps, positioning solutions as both high-performance and responsible. For investors, prioritize startups that demonstrate strong AI governance practices, as these will be critical for both immediate market success and long-term resilience as regulatory landscapes evolve.

A Unique Investment Landscape Poised for Strategic Action

Trump’s administration offers an unprecedented opportunity for dual-use investors and founders to capitalize on an environment primed for efficiency, deregulation, and growth in defense applications. However, success in the next 12 months will require a strategic approach that anticipates both opportunities and potential volatility.

By focusing on software-driven adaptability, developing resilient supply chains, building strategic government relationships, and prioritizing acquisition-ready growth, founders and investors can position themselves to thrive in a favorable but complex dual-use tech landscape. Now is the time to deploy capital into the most promising dual-use technologies, create scalable and compliance-ready products, and seize the opportunities that a deregulated, high-growth defense market affords.

Why Now is the Time for Founders and Investors to Act

Trump’s return to office presents a rare window of opportunity for startups and investors in dual-use and defense tech. The combination of a large defense budget, a deregulated environment, and an administration that prioritizes capital-efficient innovation creates ideal conditions for building breakthrough technologies. This moment is not just about maintaining national security but about redefining it with flexible, scalable solutions that address modern challenges with speed and adaptability.

For investors, this wave of innovation offers high-growth potential in a market primed for disruption. Dual-use technologies—those that bridge commercial and defense applications—are set to deliver substantial returns as the administration shifts procurement priorities from large, legacy contractors to agile tech-driven firms. With influential allies like Elon Musk advocating for change and a supportive administration, now is the time for investors to back the companies poised to drive the future of defense.

Axient Ventures stands ready to support and fund the next generation of dual-use innovators, leveraging our expertise in capital-efficient strategies to empower startups that are building the technologies of tomorrow. As this new era unfolds, the opportunity to redefine defense and technology has never been more tangible. For founders and investors alike, now is the time to be part of a historic shift, driving impact and innovation on a global scale.

 
 
 
Jordan Clayton
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